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You have just been hired by Intel in its finance division. Your first assignment is to deter- mine the net cash flows and NPV of a proposed new generation of mobile chips. Capital expenditures to produce the new chips will initially require an investment of $1.2 billion. The R&D that will be required to finish the chips is $500 million this year. Any ongoing R&D for upgrades will be covered in the margin calculation in 2a below. The product family is expected to have a life of five years. First-year revenues for the new chip are expected to be $2,000,000,000 ($2,000 million). The chip familys revenues are expected to grow by 20% for the second year, and then decrease by 10% for the third. decrease by 20% for the 4th and finally decrease by 50% for the 5th (final) year of sales. Your job is to determine the rest of the cash flows associated with this project. Your boss has indicated that the operating costs and net working capital requirements are similar to the rest of the companys products. Since your boss hasnt been much help, here are some tips to guide your analysis: 1. Obtain Intels financial statements. Download the annual income statements and balance sheets for the last four fiscal years from Google Finance (finance.g com). Enter Intels ticker symbol (INTC) and then go to Financials. Click Annual, to ensure youre getting annual, instead of quarterly, data. Next, copy and paste the income statements and balance sheets into Excel. 2. You are now ready to determine the free cash flow. Compute the free cash flow each year using Eq. 9.6 from this chapter: Unlevered Net Income Free Cash Flow (Revenues -Costs Depreciation) X (1 -Tax Rat

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Income Statement
2014 2015 2016 2017
Sales/Revenue 55.87B 55.36B 59.39B 62.76B
Cost of Goods Sold (COGS) incl. D&A 20.52B 20.65B 23.43B 23.8B
COGS excluding D&A 11.97B 11.94B 15.64B 15.68B
Depreciation & Amortization Expense 8.55B 8.71B 7.79B 8.13B
Depreciation 7.38B 7.82B 6.27B 6.75B
Amortization of Intangibles 1.17B 890M 1.52B 1.38B
Gross Income 35.35B 34.7B 35.96B 38.96B
2014 2015 2016 2017
SG&A Expense 19.69B 19.84B 21.15B 20.62B
Research & Development 11.56B 11.95B 12.75B 13.14B
Other SG&A 8.14B 7.88B 8.4B 7.48B
Other Operating Expense - - - -
Unusual Expense (114M) 251M 1.68B 1.76B
EBIT after Unusual Expense 15.77B (251M) 13.14B 16.58B
Non Operating Income/Expense 152M (98M) 349M 4.21B
Non-Operating Interest Income 141M 124M 222M 441M
Equity in Affiliates (Pretax) (69M) (95M) (38M) (232M)
Interest Expense 192M 337M 733M 646M
Gross Interest Expense 468M 595M 868M 959M
Interest Capitalized 276M 258M 135M 313M
Pretax Income 15.8B 14.21B 12.94B 20.35B
Income Tax 4.1B 2.79B 2.62B 10.75B
Income Tax - Current Domestic 3.41B 2.87B 1.33B 10.23B
Income Tax - Current Foreign 969M 842M 756M 899M
Income Tax - Deferred Domestic (284M) (918M) 532M (382M)
Income Tax - Deferred Foreign - - - -
Income Tax Credits - - - -
Equity in Affiliates - - - -
Other After Tax Income (Expense) - - - -
Consolidated Net Income 11.7B 11.42B 10.32B 9.6B
Minority Interest Expense - - - -
Net Income 11.7B 11.42B 10.32B 9.6B
Extraordinaries & Discontinued Operations - - - -
Extra Items & Gain/Loss Sale Of Assets - - - -
Cumulative Effect - Accounting Chg - - - -
Discontinued Operations - - - -
Net Income After Extraordinaries 11.7B 11.42B 10.32B 9.6B
Preferred Dividends - - - -
Net Income Available to Common 11.7B 11.42B 10.32B 9.6B
EPS (Basic) 2.39 2.41 2.18 2.04
Basic Shares Outstanding 4.9B 4.74B 4.73B 4.7B
EPS (Diluted) 2.31 2.33 2.12 1.99
Diluted Shares Outstanding 5.06B 4.89B 4.88B 4.84B
EBITDA 24.2B 23.58B 22.6B 26.46B
Balance Statement
Assets 2014 2015 2016 2017
Cash & Short Term Investments 14.05B 25.31B 17.1B 14B
Cash Only 2.56B 15.31B 5.56B 3.43B
Short-Term Investments 11.49B 10.01B 11.54B 10.57B
Total Accounts Receivable 4.43B 5.53B 5.07B 5.68B
Accounts Receivables, Net 4.43B 4.79B 4.69B 5.61B
Accounts Receivables, Gross 4.47B 4.83B 4.73B 5.63B
Bad Debt/Doubtful Accounts (38M) (40M) (37M) (25M)
Other Receivables - 743M 384M 71M
Inventories 4.27B 5.17B 5.55B 6.98B
Finished Goods 1.44B 1.74B 1.67B 1.99B
Work in Progress 2.38B 2.89B 3.19B 3.89B
Raw Materials 462M 532M 695M 1.1B
Progress Payments & Other - - - -
Other Current Assets 4.98B 2.31B 7.78B 2.84B
Miscellaneous Current Assets 4.98B 2.31B 7.78B 2.84B
Total Current Assets 27.73B 38.32B 35.51B 29.5B
2014 2015 2016 2017
Net Property, Plant & Equipment 33.87B 32.48B 36.52B 41.82B
Property, Plant & Equipment - Gross 80.35B 84.02B 90.45B 101.11B
Buildings 22.99B 25.58B 26.63B 27.39B
Land & Improvements - - - -
Computer Software and Equipment - - - -
Other Property, Plant & Equipment - - - -
Accumulated Depreciation 46.47B 51.54B 53.93B 59.29B
Total Investments and Advances 12.34B 12.37B 15.32B 12.4B
Other Long-Term Investments 9.12B 7.85B 10.9B 7.9B
Long-Term Note Receivable 416M 960M 299M 860M
Intangible Assets 15.31B 15.27B 23.59B 37.13B
Net Goodwill 10.86B 11.33B 14.1B 24.39B
Net Other Intangibles 4.45B 3.93B 9.49B 12.75B
Other Assets 1.67B 1.01B 1.18B 688M
Tangible Other Assets 1.66B 993M 1.18B 688M
Total Assets 91.96B 101.46B 113.33B 123.25B
Liabilities & Shareholders' Equity
2014 2015 2016 2017
ST Debt & Current Portion LT Debt 1.6B 2.63B 4.63B 1.78B
Short Term Debt 516M 41M 25M 37M
Current Portion of Long Term Debt 1.09B 2.59B 4.61B 1.74B
Accounts Payable 2.75B 2.06B 2.48B 2.93B
Income Tax Payable 443M 272M 329M 1.39B
Other Current Liabilities 11.22B 10.68B 12.86B 11.33B
Dividends Payable - - - -
Accrued Payroll 4.68B 4.44B 4.97B 5.23B
Miscellaneous Current Liabilities 6.55B 6.24B 7.9B 6.1B
Total Current Liabilities 16.02B 15.65B 20.3B 17.42B
Long-Term Debt 12.11B 20.04B 20.65B 25.04B
Long-Term Debt excl. Capitalized Leases 12.11B 20.04B 20.65B 25.04B
Non-Convertible Debt 12.11B 20.04B 20.65B 25.04B
Convertible Debt - - - -
Capitalized Lease Obligations - - - -
Provision for Risks & Charges 1.69B 1.51B 1.94B 1.56B
Deferred Taxes 3.15B (97M) 823M 2.21B
Deferred Taxes - Credit 3.78B 954M 1.73B 3.05B
Deferred Taxes - Debit 622M 1.05B 907M 840M
Other Liabilities 1.59B 1.33B 1.6B 6.31B
Other Liabilities (excl. Deferred Income) 1.11B 804M 1.53B 6.31B
Deferred Income 483M 530M 65M -
Total Liabilities 35.18B 39.48B 46.22B 53.36B
Non-Equity Reserves - - - -
Preferred Stock (Carrying Value) 912M 897M 882M 866M
Redeemable Preferred Stock 912M 897M 882M 866M
Non-Redeemable Preferred Stock - - - -
Common Equity (Total) 55.87B 61.09B 66.23B 69.02B
Common Stock Par/Carry Value 21.78B 23.41B 25.37B 26.07B
Retained Earnings 33.42B 37.61B 40.75B 42.08B
ESOP Debt Guarantee - - - -
Cumulative Translation Adjustment/Unrealized For. Exch. Gain (345M) (515M) (519M) (9M)
Unrealized Gain/Loss Marketable Securities 2.46B 1.75B 2.16B 1.73B
Revaluation Reserves - - - -
Treasury Stock - - - -
Total Shareholders' Equity 56.78B 61.98B 67.11B 69.89B
Accumulated Minority Interest - - - -
Total Equity 56.78B 61.98B 67.11B 69.89B
Liabilities & Shareholders' Equity 91.96B 101.46B 113.33B 123.25B
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Answer #1

Capital Investment Initial R&D Total Capex 1200 Mn 500 Mn 1700 Mn Tax rate for 2015 PAT PBT Tax Rate 11420 14210 19.63% All F

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